U.S. Sen. Dick Durbin (D-Ill.) on Jan. 23 said he would soon propose legislation that would significantly lower the threshold for which borrowers with private student loan debt could declare bankruptcy, while maintaining the current, high threshold for federal student loans. The pending bill, which already has the support of Sens. Tom Harkin (D-Iowa) and Al Franken (D-Minn.), targets private student loans because they frequently carry variable interest rates that result in egregiously high monthly payments, leaving struggling borrowers few options to lower their payments when they run into financial roadblocks. "Too many Americans are carrying around mortgage-sized student-loan debt that forces them to put off major life decisions like buying a home or starting a family," Durbin noted. "It's time for action." Private lenders, however, have warned that making it easier to declare bankruptcy would drive up students' borrowing costs, because the risk of lenders' losses would increase if more consumers turn to bankruptcy.
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